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The government's debt sales have fallen below the $1.1 billion a month needed to meet this year's bond tender programme, which may force the Debt Management Office to offer higher yields to make up the shortfall.

The DMO has sold about $600 million a month of bonds over the past three months and to meet its target of $13.5 billion for the fiscal year it would have to lift the sales up to about $1.2 billion over the remaining four 4 months.

This year's target comes after the government raised a record $20 billion in the debt market last fiscal year, taking advantage of demand for the nation's relatively high-yielding debt as a haven from Europe and an American economy that at the time looked headed back into contraction.

It will have to cast the net wide again in 2013, when it has $11 billion of April 15, 2013, bonds coming due. By then the Reserve Bank is expected to have resumed raising interest rates as the rebuilding of Christchurch puts pressure on resources.

"If pressures in Europe continue to ease, and the RBNZ moves back into tightening mode, then investors are likely to require higher bond yields to attract sufficient demand," said Christian Hawkesby, head of fixed income at Harbour Asset Management.

The yield gap, or spread, on New Zealand 10-year bonds versus comparable US Treasuries has widened since the early February, when Greek leaders first signalled they would agree to austerity measures needed to win a second tranche of bailout funds. The spread has risen to around 220 basis points, the highest since November.

Hawkesby says the smaller size of recent debt auctions partly reflects that New Zealand bonds "have fallen off the radar of some international investors as pressures in Europe have eased, reducing the relative attractiveness of the New Zealand story."

Foreign investors held 56.7 percent of government bond and Treasury bills on issue in January, down from 57.8 percent in the same month last year, according to Reserve Bank figures.

The government will update its debt funding needs and bond sale plans with the budget on May 24. In the Budget Policy Statement on Feb. 16, the Treasury cut its forecast for gross domestic product in the year ending March 311.9 percent, down from a previous estimate of 2.3 percent. Growth in 2013 was cut to 2.8 percent from 3.8 percent.